Advance tax on commercial vehicles
What advance tax a Kenyan owner of trucks, vans or buses pays under the Income Tax Act, how it is credited later, and how to record it in the books.
By Achekam · · 4 min read · For Running a business businesses in Kenya
A transport business in Nakuru runs a handful of lorries and a couple of matatus. Every year, alongside insurance and inspection, there is another charge to pay for each vehicle: advance tax. The owner pays it, files the receipts somewhere, and treats it as one more running cost of being on the road.
That last step is where money is often lost. Advance tax is not simply a cost. It is tax paid ahead, and KRA treats it as a credit the owner can use later. This article explains which vehicles it applies to, how the Income Tax Act sets the amount, how the credit works, the PIN requirements that come with vehicle ownership, and how to record all of it so the credit is not forgotten.
Vehicles covered
The Income Tax Act, as published on Kenya Law, sets advance tax for two groups of commercial vehicles in its Third Schedule, Head B, paragraph 8:
- Goods vehicles: vans, pick-ups, trucks, prime movers, trailers and lorries.
- Passenger vehicles: saloons, station-wagons, mini-buses, buses and coaches.
If a vehicle sits on the line between groups, such as a double-cab pick-up used partly for passengers, ask your tax adviser or KRA which rate applies.
How the Act sets the amount
The Act sets the rate differently for each group, and in both cases there is a minimum.
| Vehicle group | Rate in the Act | Minimum |
|---|---|---|
| Vans, pick-ups, trucks, prime movers, trailers, lorries | Two thousand five hundred shillings per tonne of load capacity per year | Five thousand shillings a year, if higher |
| Saloons, station-wagons, mini-buses, buses, coaches | One hundred shillings per passenger capacity per month | Five thousand shillings a year, if higher |
So for a goods vehicle, multiply its load capacity in tonnes by the rate per tonne; if the result is below the minimum, the minimum applies. For a passenger vehicle, multiply its passenger capacity by the monthly rate and by the months in the year, and compare that with the minimum in the same way.
A warning about sources: KRA's companies filing page shows older, lower figures than the Act. The Act is the governing text, so work from it, and treat these figures as correct at the time of writing only. The Income Tax Act on Kenya Law is where to check the current wording of the Third Schedule before you budget for the year.
Credit against income tax, and refunds
Advance tax is called "advance" for a reason. KRA's guidance on tax refunds lists advance tax credits among the ways an income tax refund can arise, alongside over-deducted PAYE, overpaid instalment tax and withholding tax. In other words, KRA treats the advance tax a vehicle owner pays as a credit against income tax, not as a cost that disappears.
Where the business owes income tax for the year, the credit reduces what is still to pay. Where profits are low, the credits can be larger than the tax due, which is how a refund can arise. Either way, the credit only helps if it is claimed, which means keeping proof of every payment for every vehicle. How refund claims work is covered in claiming an income tax refund, and how advance tax sits beside the year's other prepayments is explained in instalment tax.
A PIN for vehicle registration and transfer
KRA says a PIN is required for a list of transactions that includes motor vehicle registration and transfer, as well as registering a business name or company, opening accounts with financial institutions and registering M-PESA pay bill and till numbers. For a fleet owner, the practical points are:
- every vehicle should be registered to the PIN of the business that owns and claims it;
- when a vehicle is bought or sold, the transfer needs the PINs of both parties;
- a vehicle registered to a director personally, but used by the company, creates confusion about whose advance tax credit it is.
Keep the logbook, the registration owner and the business that pays the advance tax aligned.
Vehicles and advance tax in Achekam's books
The vehicles themselves are fixed assets. In Achekam, a fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance with a journal each month, and dispose of them with the profit or loss posted. Two limits to note: tax wear-and-tear is not worked out, so capital allowances on the fleet remain a separate calculation for the tax return, and the register is not in the Business Essentials plan.
Advance tax needs its own account. Each business has its own double-entry ledger, and accounts can be added, renamed or switched off, so add an asset account such as "Advance tax paid on vehicles". Record each payment with a manual journal: debit that account, credit the bank. An unbalanced journal, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal. Put the vehicle registration and the payment reference in each narration.
At year end, when the income tax for the year is worked out, the balance on that account is set against the tax due, with a journal agreed with your accountant. If nothing is left on the account after that, every credit has been used.
A fleet checklist
- List every commercial vehicle with its registration, load or passenger capacity, and the PIN it is registered to.
- Work out each vehicle's advance tax from the Act, applying the minimum where it is higher.
- Pay, and file the proof of payment against each vehicle.
- Post each payment to the advance tax account, not to an expense.
- At year end, check the account total against the payment proofs, and claim the credit on the return.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
